Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

How do you adjust the withdrawal rate based on someone’s age?

The convention in the studies is to go 30 years out. The assumption is that the person will retire at 65. Having the retirement survive for 30 years gets him to age 95. Not too many live beyond that age.

It is of course possible to examine what would happen at all sorts of other ages. I think it can be useful to do that. When Greaney said that a 4 percent withdrawal is “100 percent safe,” he was directing his words at a community of people planning early retirements. I believe that Greaney left his corporate employment at age 39. If he lived to age 95, he would need a plan to survive for 56 years. That’s a lot more than 30 years.

In practical terms, that’s not as much of a problem as it appears to be on first consideration. When retirements fail, they fail because of a stock price crash in the first 10 years. A retirement that is constructed to survive 30 years is likely going to survive 56 years. If you don’t take a big early hit, you are probably going to be fine.

That’s why taking valuations into consideration is so important. The valuation level that applies on the day the retirement begins tells you how much risk there is that you will take on a big hit in the first 10 years. That’s almost the entire story of retirement safety. You don’t want to overlook that.

The safe withdrawal rate concept is great. It reveals all sorts of things that are counterintuitive, things that people would miss if they did not explore safe withdrawal rates. One of the reasons why I fell in love with Greaney’s site when I discovered it is that he put so much focus on safe withdrawal rates.

Of course, it’s important to get the numbers right. That’s where Greaney and I part company. He does not take valuations into consideration. I believe that it is 100 percent imperative to take valuations into consideration. It is my strongly held view that valuations are the most important factor in retirement safety. Because of how they affect that vulnerable period — the first 10 years of the retirement.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

No 30 year period has ever failed, Rob.  You can’t have it both ways.  You can’t say on one hand to look at the historical market and then say just the opposite when it doesn’t suit you.  If you doubt Greaney, you have to doubt Shiller……..and that means you are also wrong.

I agree that a 4 percent withdrawal has not failed in any 30-year time-period in the historical record.Yes, that’s history.

But, no, that doesn’t make a 4 percent withdrawal safe for a retirement beginning today. Throughout history, the most important factor affecting safety has always been the valuation level that applies on the day the retirement begins. Someone who believes that history is a good guide to what will happen in the future would say that any analytically valid calculation of the safe withdrawal rate must include consideration of the valuation level that applies on the day the retirement begins. Given that it always was a factor in the past, why wouldn’t it continue to be a factor in the future?

You are acting as if the concept of being safe and the concept of having survived are the same thing. They’re not.

Now — If the CAPE level had been 44 in every year of our stock market history from 1870 until today and 4 percent had always survived, then I would agree that it would be fair to say that 4 percent had shown itself to be safe. That’s a lot of data points. But that’s not the situation. We have only had one month when the CAPE hit that level.One data point is not enough to show that that withdrawal rate is safe at that valuation level. And that withdrawal rate barely survived on the earlier occasions when it was used starting from a valuation level that was super high. That shows that the valuation level matters when it comes to safety and should never be ignored.

You are too impressed by the small number of times that a high-risk withdrawal rate has survived. Saying that something is high-risk is not saying that it is certain to fail. It is saying that there is a chance that it might succeed and a chance that it might fail. There was a good chance that a 4 percent withdrawal for a retirement that began in 1929 would fail. It happened to succeed. That fact doesn’t retroactively make that withdrawal rate safe. It was high-risk in 1929 and it was still high-risk in 1959, when it had survived 30 years. Sometimes a high-risk withdrawal rate will survive. But a high-risk withdrawal rate will never retroactively become safe. Safety has to be determined at the time the retirement begins. In 1929, that withdrawal rate was high-risk because it was not known at that time whether the returns sequence that would come up would be a lucky one or an unlucky one.

All that Greaney showed is that it is POSSIBLE that a 4 percent withdrawal rate will work out starting from a super high valuation level. It is possible. The historical data shows that. It does not show that it is safe. It shows that it is high-risk.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Do you have a fully funded retirement or not.  That is the scorecard for telling us who is right and who is wrong.

Does the Greaney retirement study contain a valuation adjustment or not? That is the scorecard for telling us whether Get Rich Quick/Buy-and-Hold is on the up and up or not.

If the Buy-and-Hold Goon Squads were not supporting a cover-up, there never would have been a single abusive post and I would be flying high today, with hundreds of millions of dollars in my account. If we all were thinking clearly, there would be zero penalty for pointing out an error in a retirement study.

Those were real people who posted at the Motley Fool board and who thought that the Greaney study was legitimate. I was there.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“Bernstein was saying that Greaney’s claim that a 4 percent withdrawal is always “100 percent safe” was in error.”

“is”

Greaney’s study, and all the others, were very clear that they were looking at what survived in the past.

https://retireearlyhomepage.com/restud1.html

“The maximum 100% survivable withdrawal rate is the highest annual withdrawal rate where all terminal values are positive for the pay out periods examined.”

“for the pay out periods examined”

Bernsteins comment was about the future.

You are the only person I have encountered who can’t understand the difference.

“When the starting point valuation level is what it was in January 2000, the withdrawal rate that worked in a worst-case scenario was 2 percent”

Show me the numbers on that. Has a 4% withdrawal rate from 2000 portfolio run out of money?

No, a retirement plan that was initiated in 2000 and called for a 4 percent annual withdrawal did not run out of money. But it was at great risk of running out of money. The risk is not quite as great today but a retirement plan calling for a 4 percent withdrawal is far from “100 percent safe” at today’s valuation levels.

The valuation level that applies on the day the retirement begins is the most important factor affecting the risk of the retirement. Everyone needs to know that. That needs to be discussed at every site at which investment discussions are held.

The people at the Motley Fool board who were using the Greaney study to construct their retirement plans had no idea how much risk they were taking on by doing so. All of our discussions showed that. That was why there were thousands of people who expressed a desire that honest posting be permitted, that all of the abusive stuff and the criminal stuff be brought to a full and complete stop. That was why Wade Pfau said that the Greaney study is “dangerous.” People need to know the downside of the approach that Greaney used. That’s my sincere take.

Anytime someone discusses whether something is safe, he is talking about the future. All that you can say by looking only at the past is that something survived. Greaney reported the Historical Surviving Withdrawal Rate accurately. But he did not report the SAFE withdrawal rate accurately. To determine whether something is safe, you need to look at the factors affecting safety. The most important factor affecting safety is the valuation level that applies on the day the retirement begins. Greaney’s study does not contain a valuation adjustment. So he couldn’t possibly get the numbers right.

I am not the only person who had concerns about the Greaney study. LOTS of people had concerns. Not a majority. But a significant minority. Those people were silenced through the use of abusive tactics. I am saying that we should retire the abusive tactics at every site and let every community member (including the big-name experts) say what he or she truly believes re these matters. I see that as a win/win/win/win/win. We should stop having a debate about having a debate and move to the debate proper.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

I have something else that I want you to say.  Just admit that no one else, other than you, has said Greaney made an error.

That I cannot say. Wade Pfau told me that he thought that the Greaney study was “dangerous.” John Walter Russell researched the matter in depth and concluded that: “The Safe Withdrawal Rate debate is over. Hocus has won.” William Bernstein wrote in his book that the safe withdrawal rate at the top of the bubble was 2 percent. Hundreds of our fellow community members advanced comments in which they expressed a desire that honest posting re the peer-reviewed research be permitted, which shows that they at least believed that the questions of whether the Greaney retirement study is in error should be explored. And of course the behavior of you Goons for 22 years now shows that you don’t believe that the Greaney retirement study contains a valuation adjustment any more than I do. 100 percent of the evidence that we have seen over the first 22 years of our discussions shows that the Greaney study is in error and 0 percent show that the study contains a valuation adjustment.

My best wishes to you, Anonymous.

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

What do you mean by “safe”?

Survived is easy to define. Did you run out of money before the last day of the period? If you didn’t then your portfolio survived. That is why all the SWR come up with roughly the same number, 4% because they are all using the same definition.

Your definition (or lack of definition) of “safe” is impossible to test because it is undefined.

By “safe” I mean “safe.”

“Survived” is something very, very, very different. If you look at the historical data, you see that the withdrawal rate that survives drops dramatially when valuations are at insane levels. That 4 percent number resultes from retirements that began in 1929, when valuations were at insane levels. Stocks generate an average return of 6.5 percent real. You would think that you could take out more than 4 percent each year. But that high valuation level pulled the number that SURVIVED all the way down to 4 percent. The times when 4 percent barely survived do not turn up randomly. They turn up when valuations are at crazy levels. The valuation level that applies on the day when the retirement begins is the biggest factor determining both what survived and what is safe.

Looking at survival alone can never tell you what is safe. There are only a tiny number of cases in which prices got to insane levels that caused 4 percent to come within a whisker of failing for 1929 retirements. Does the fact that a 4 percent withdrawal SURVIVED in that tiny number of cases show that a 4 percent withdrawal is “100 percent safe” (Greaney’s claim) even when valuations are at insane levels? Obviously not. The fact that 4 percent barely survived when prices were at insane levels shows that 4 percent is an extreme high-risk withdrawal rate for retirements beginning at insanely high valuation levels.

The 4 percent withdrawal survived for 1929 retirements because we had a lucky returns sequence starting in 1929. Of all the returns sequences in the historical record, that returns sequence was in the middle of those we have seen. So a retiree who took a 4 percent withdrawal had a 50 percent chance of it surviving 30 years. It did survivce. Because it was safe? Hardly. Because it was lucky.

To determine what is safe, you have to go into the thing with a desire to determine what is safe. We know that valuations are the most important factor BY FAR. When you take valuations into consideration, you learn that the SAFE withdrawal rate is a number between 1.6 and 9.0, depending on the valuation level that applies on the day the retirement begins.

How do we get the safe withdrawal rate up to 4 percent? With market timing! If all investors religiously practiced market timing, we would never see the safe withdrawal rate drop to 1.6. It’s crazy that the safe withdrawal rate for an asset class that generates returns of 6.5 percent real could ever drop that low. How could such a crazy thing happen? It’s IRRATIONAL exuberance that does it. How do we rein in irrational exuberance. Buy encouraging market timing at every site. Market timing/price discipline is the mortal enemy of irrational exuberanxe. It kills it.Investors want to act in their self-interest and, if they are informed of the importance of it, most would be happy to practice ir regularly.

To calculate what is safe, you need to be willing to be RATIONAL in how you set up your calculations. That means always taking price into consideration when making a purchasde. The OPPOSITE of what the Buy-and-Holders advovcate.

My sincere take.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

In your most recent article at Value Walk https://www.valuewalk.com/using-historical-surviving-withdrawal-rate-planning/ you state “But the number that Buy-and-Hold studies identify is not a random number. It is the Historical Surviving Withdrawal Rate (HSWR). <b>That’s essentially the average of all the possible safe withdrawal rates</b>.”

It is not the average of anything. It is the single lowest withdrawal rate that survived the periods examined.

It’s two ways of stating the same thing.

If the market were efficient, the lowest withdrawal rate that survided the periods exaimed would indeed be the safe withdrawal rate. if the market were efficient, overvaluation would be a logial impossibility and mrket timing would not be needed to correct for overvaluation. Shiller showed with his Nobel-prize-winning research that the market is NOT efficient. So overvaluation IS possible and market timing IS required and you can’t identifty the safe withdrawal rate without taking valuations into consideration.

When you do the math correctly, you learn that the safe withdrawal rate is a number between 1.6 percent and 9.0 percent, depending on the valuation level that applies on the day the retirement begins. 4.0 is a number between those two extremes. If we had thoudsands of years of data rather than just 150 years of data, the numbers would be more precise and the historical surviving withdrwal rate would come closer to being the average of all the safe withdrawal rates that apply.

When you take valuations (the most important consideration in determining what is safe) out of the story, the number you come up with could be just about anything. In some cases, it is a wildly high number. In other cases, it is a wildly low number. In still other cases, it is not too terribly off the mark. It is essentially a random number. It is the number that would apply in a world in which valuations did not affect long-term returns, a world that those who follow the peer-reviewed research should have stopped worrying too much about in 1981. The 4.0 percent number is the safe withdrawal rate for the dark ages of the investing advice field, the safe withdrawal rate for a time-period in which Shiller’s amazing research did not yet exist.

My sincere take.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

Risk is not constant for anything.  Period.  How did CDs do over the last couple of years when inflation was/is running white hot?  Look at your predictions and how things worked out for you.

If risk is not constant for anything, then we should be permitted to speak honestly about what the research says about stock investing at every site on the internet.

There were people at the Motley Fool board who were using the Greaney study to plan their retirements.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“ All of the wonderful fruits of the first 20 years of our discussions resulting from me working up the courage to put that amazing question on the table on the morning of May 13, 2002.”

Your ex-wife referred to those fruits as lemons.

Because of the abusive posting of you Goons and how it destoyed or poisoned so many previously wonderful discussion board and blog communities. If everyone at the Retire Early board had insisted that Greaney correct the error in his retirement study in 24 hours, we could have then worked together as a community to determine the accurate safe withdrawal rate numbers. Then we could have taken what we learned to every other investing site on the internet. Then we could have gone into all the other critically important metters, how much to engage in market timing, when to do it, asset allocation questions, risk management questions, how to protect our economy from Buy-and-Hold Crises, all of the questions that I explore every week in my column at the Value Walk site. Then I would have earned the $500 million without having to bring any legal cases. And my ex woild have been 100 percent thrilled with it all.

The only thing that I ever caused any problem is the abusive/criminal behavior. The last 41 years of peer-reviewed research is an amazing advance. If I were king of the world, we never would have seen a single abusive post, just one gigantic learning experience for all. I don’t want anyone else ever to experience any of this megativity. That’s why I want to open every site to honest posting, without a single exception. I am not able to imagine any downside.

Rob

Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

It looks like year 2000 retirees are doing just fine

https://www.bogleheads.org/forum/viewtopic.php?p=7056547#p7056547

I didn’t read the thread. But I agree that, given the CAPE values that we have seen in recent years, Year 2000 retirees who took a 4 percent withdrawal should be doing just fine.

But the question that a safe withdrawal rate study is intended to answer is not “is there a chance that this retirement will do just fine?” It is “will this retirement survive even in a worst-case scenario (the least faovriable returns sequence that we have seen in history but nothing worse than that)? Retirements that began in January 2000 with a 4 percent withdrawal had only a 30 percent chance of surviving for 30 years, according to the historical return data.

You have to take a big hit sometime in the first ten years for the retirement to fail. Otherwise, the portfolio value will have been built up enough that nothing that we have seen in the history of the U.S. market would be enough to bring it down. The Year 2000 retiree took a hit in the 2008 economic crisis. But prices recovered about a year later. So long as prices recover in that amount of time, the retirement is going to be fine.

But what would happen if the CAPE value fell to 8 (the CAPE value usually drops to 8 at the end of a long bull market) over the course of the next year and then stayed somewhere in that neighborhood for 10 years? If the portfolio started at $1 million, the drop from 30 to 8 would subtract almost $700,000. And ten years of $40,000 withdrawals would subtract another $400,000. That retirement is not “100 percent safe.”

Sooner or later, we are going to hit a situation like that. It will be too late for those who suffer failed retirements for us to begin permitting honest posting at thst time. We should have corrected the studies as soon as we learned they were in error. We should set up the studies to do what they purport to do — identify the SAFE withdrawal rate. That number cannot be calculated honestly and accurately without taking the valuation level that applies at the time of the retirement into consideration. The safe withdrawal rate CHANGES with changes in valuation levels.

Rob